Peter Franklin: We need a Cabinet Minister dedicated to delivering financial stability

In Britain, the quantity of banknotes and coins in circulation (plus certain Bank of England deposits) is known as M0. Higher M-numbers, such as M4, describe progressively broader definitions of the money supply. But I expect you knew that already. 

What you may not know is that there are negative M-numbers, which describe progressively narrower definitions of the money supply. For instance, minus M9 is the quantity of loose change currently stuck down the sides of the nation’s sofas – or, at least, it would be had I not just made it up.

Still, the sum of money thus taken out of circulation must be considerable – so much so that I have written to Alistair Darling urging him to consider the deflationary influence of soft furnishings on the British economy. So far, he has failed to reply to this or any of my letters – perhaps the green ink is putting him off. Next time, I’ll download my ideas onto a couple of CDs marked “really secret personal details of 25 million people” – which ought to get his attention.

Of course, the real prize would be to find the actual disks – which, you never know, could be lurking in the hidden recesses of your favourite armchair. So the next time you’re grubbing around for an errant fifty pence piece, have an extra good feel. It’s a longshot I grant you, but surely worth a try. I mean, just imagine if you found them!

If it were me, I’d send off the disks to our glorious leader, David ‘Dave’ Cameron, so that he could present them to Gordon Brown during PMQs. Either that or I’d auction them off to the highest bidder – probably the Russian mafia or maybe the promotions department at Readers’ Digest.

Enough daydreaming; what of reality? On the face of it, CD-gate confirms our every prejudice concerning the utter uselessness of Government. But, unfortunately, it goes a lot deeper than that. The real issue, you see, is the magnifying effect that information technology has on stupidity – a phenomenon that applies as much to the private sector as to the public.

Take Northern Rock, for example. Passing over HMG’s special contribution, consider the origins of the crisis – which lie in the selling of iffy mortgages on unsustainable terms to desperate people on a massive scale all over the good ol’ US of A. Then consider how we got from there to here.

Once upon a time, there were these quaint figures called bank managers who actually knew the families they were lending to. These days, it can all be arranged by computer, which is so much more convenient if you don’t mind the occasional worldwide financial meltdown.

Now, there’s nothing new about irresponsible lending. But if the First Bank of Crapville, Idaho had been hawking iffy mortgages in the days before the IT revolution, I doubt that they and their kind could have worked up their misdeeds into a global crisis. But in the 21st century what happens in Crapville can bring down a bank half a continent and an ocean away. Not even the Wall Street Crash of 1929 managed to do that.

I wonder what other nasty surprises await us. Does anyone really understand what is going on in the world of private equity? Do they know what lurks in the undergrowth of the hedge fund industry? If it all unravels – and who can guarantee that it won’t – the consequences don’t bear thinking about. The bankruptcy of but a few building societies and pension funds would overwhelm the ability of government to do anything about it – and the fury directed against the financial elites could shatter the political underpinnings of our enterprise society. Even a moderate escalation of the present situation risks a regulatory crackdown that would more likely harm than heal.

That is not to say that Government has no role in anticipating and averting financial disaster. Indeed, its role is so important that there should be a Cabinet level minister dedicated to the task. The idea that the Chancellor, with all his other responsibilities, can devote sufficient attention to this matter is absurd.

In this respect, I was struck by something I read on ConservativeHome.com back in July:

“It is time to break up the Treasury… Essential regulatory functions could be combined with the pensions brief, so that the stability of the financial system would be the responsibility of one cabinet minister.”

Wise words – almost prophetic, given subsequent events. Who can this genius be? Well, er, it was me actually. But don’t let that put you off. Just write to George Osborne – in green ink if you must – urging him to make it Conservative policy.

Devoting a Cabinet minister to financial stability is no guarantee of financial stability, but it would help and, if nothing else, would send a message to the anxious savers and pension fund holders of Middle England that we take their concerns seriously.

Comments

[John Hayes Fan]

Life would be so much simpler without money.

Let's return to the barter system. How can there be a meltdown if I pay for my son's education in potatoes, and in turn get paid for my services as a freelance farmhand in French lessons?

No money changing hands, just good old fashioned trade, WITH A HUMAN FACE.

Think about it.

[Stephen]

A rambling article with no point, and if there was a point, "a Cabinet minister to financial stability is no guarantee of financial stability, but it would help".

Please, are the Treasury, the boardmembers of the BoE, the FSA, not enough?

How about a Cabinet minister for the prevention of the teenage violence we see on our streets, it is no guarantee, but it would help.

How about a Cabinet minister for clean air, it is no guarantee of cleaner air, but it would help.

Creating new posts doesn't solve any problems.

It almost reminds me of the England football team, so much clamour and excitement to choose a new manager: "Oooh Mourinho, ooh Capello, ooh Martin O'Neill, oooh Alan Shearer", but absolutely no desire to discuss the tactics or (policies in the extended metaphor) that led to defeat.

[James Sproule]

Let’s have a minister for poverty, so we can feel we are solving that problem as well. Then we can have a minister for schools, children, playgroups and general well being. That way, people can realise we care about such matters and feel that something is being done. Even if nothing actually gets done, what matters is the appearance of action – well, that seems to be politics as put foreword by Labour.

Financial stability is the responsibility of the chancellor. Stability is delivered through fiscal prudence, it is imperilled through wasteful spending and over regulation. No minister short of the Chancellor would ever be able to have influence over such forces.

[William Norton]

The proposal to split up the Treasury was daft in July and it is still daft now. It's a very Harold Wilson idea.

Peter's perceptive suggestion of having financial stability as a ministerial objective is so radical that New Labour have already adopted it. From the HMT Aims & Objectives webpage:
Objective I:
Maintain a stable macroeconomic environment with low inflation and sound public finances in accordance with the Code for Fiscal Stability.
Objective III:
Promote efficient, stable and fair financial markets, for their users and the economy.
Objective V:
Promote UK economic prospects by pursuing increased productivity and efficiency in the EU, international financial stability and increased global prosperity, especially protecting the most vulnerable."

Whether they're actually achieving any of this tedious mission statement drivel is another matter, but the spirit seems to be willing however weak the flesh. And as for a single Cabinet Minister responsible for delivering this, once again New Labour are ahead of the Franklinite curve. He's called the Chancellor of the Exchequer. (Expenditure goes to the Chief Secretary and tax raising falls to the Financial Secretary, who isn't in the Cabinet.)

[Tony Makara]

As much as we libertarians would like to see a laissez-faire economic policy, we have to accept that the state does have to keep a watchful eye over individual financial actions in the best interests of the wider economy. The sub-prime crisis in the states and the wanton borrowing encouraged here by the Labour government have created severe economic problems. Cashflow is the blood circulation of our economy and when that flow is interupted it effects us all. Labour have encouraged borrowing and consumer spending to create an unsustainable growth, this in itself is dangerous because it is an inflationary policy. We currently don't see that inflation in consumer goods because it is hidden by the strength of the pound and the fact that Labour changed the measurement for inflation, but it is there as the housing market proves. The future Conservative government must totally discourage the easy borrowing culture that Labour has promoted and instead return our nation to sensible borrowing with the emphasis on supporting the supply-side of our economy.

[Geordie-Tory]

How about? The Chancellor of the Exchequer!

[MHDH]

James Sproule. Spot on. A ridiculous article.

[DavisFan]

"John Hayes Fan" seems to have some EXCELLENT ideas.

That is the kind of innovative thinking this party desperately needs.

I have never met him, but he certainly seems a welcome addition to the fold, and far better than "Grayling4Leader".

SOUND.

[John Hayes Fan]

Thanks Davis Fan.

The cave people got on just fine without money. Why can't we?

[DavisFan]

John Hayes Fan is absolutely right.

All these people whinge about a currency which is not attached to the gold standard.

I say - let's not just go back to the gold standard.

let's go back to the pelt standard.

[John Hayes Fan]

REAL solutions, for REAL problems.

Are you listening, Mr David Cameron?

[DavisFan]

He won't listen, John Hayes Fan.

He's too busy knitting yoghurt and swigging muesli and playing the wall game with his mincing metrosexual friends on Piccadilly Circus in London town.

[Unimpressed]

Franklin's articles are becoming more and more silly. The Editor should replace the self-important scribbler. It just proves that you don't have to be intelligent to work at CCHQ or advise Shadow Ministers.

[Brian W]

How about a Chancellor of the Exchequer that REALLY understands economics and money